Fidelity Wins California 529 Plan; Replaces TIAA-CREF

In the battle over California’s 529 college savings program, Fidelity Investments provisionally beat out the Vanguard Group to replace TIAA-CREF as the provider this week. TIAA-CREF had been running California’s ScholarShare College Savings program since its inception in 1999, but its contract expires Oct. 21. Unlike TIAA-CREF, Fidelity offers a broker-sold option.

The state board agreed to begin negotiating a new contract with Fidelity Investments, the top bidder, late Thursday. If a deal can’t be reached, the state will turn to Vanguard and Upromise Investments, a partnership that was second ranked in the bidding. TIAA-CREF was the only other bidder.

Although California is the most-populous state in the U.S., ScholarShare has about $1.85 billion in assets, making it the ninth-largest individual 529 plan, according to Morningstar. That’s partly because it doesn’t offer a tax deduction to residents who invest in the in-state plan, and because it hasn’t offered a broker-sold option until now.

In the past several years, TIAA-CREF has lost its contracts to manage the New York and Missouri 529 plans. The firm continues to manage 529 plans for Connecticut, Michigan, Oklahoma, Tennessee and Kentucky. (The loss of California marks a set back to TIAA-CREF’s wider ambitions; for more, see “School Of Hard Knocks”.)